(Reuters) – Oil giant Saudi Aramco has agreed to buy a minority stake in a new engine-to-transmission company that French carmaker Renault SA and China’s Geely Automobile Holdings Ltd plan to jointly set up, they said on Thursday.

In January, Reuters reported that Aramco was in discussions to acquire a stake of up to 20% in the previously announced but as yet unnamed transmission company Geely-Renault, which would develop and supply internal combustion engines (ICE) and hybrid technologies.

They said on Thursday that Geely and Renault were expected to retain equal stakes in the new independent entity, but did not disclose how much each would hold or how much Aramco would invest.

The new joint venture aims to develop more efficient gasoline engines and hybrid systems at a time when much of the auto industry is focused on a capital-intensive transition to pure electric vehicles.

“This partnership with Aramco … will give it a head start in the race for ultra-low emission ICE powertrain technology,” Renault CEO Luca de Meo said in a statement.

By cutting its internal combustion engine business, Renault plans to focus on electric vehicles, part of a wide-ranging restructuring of the French automaker that also includes a review of its decade-old alliance with Nissan Motor Co.

“Aramco’s entry offers unique know-how to help develop breakthrough innovations in synthetic fuels and hydrogen,” De Meo said.

The deal would make Aramco the first major oil producer to invest in the automotive business as the rise of electric vehicles threatens to erode demand for conventional fuels.

Last year, Aramco announced a collaboration with Hyundai Motor Co to study advanced fuels that could be used in hybrid engines to reduce CO2 emissions.

For Geely, the agreement with Renault expands the pattern of establishing partnerships outside of China. Geely previously announced a deal to develop hybrid gasoline engines with Mercedes-Benz and has a stake in the German automaker.

The new company will have an annual production capacity of more than 5 million internal combustion engines, hybrid and hybrid engines and transmissions per year, the companies said.

(Reporting by Anirudh Saligram in Bengaluru; Editing by Muralikumar Anantharaman, Christian Schmollinger and Kim Coghill)



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